The Scottish Parliament passed the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act on 5 June 2018. Against a backdrop of declining legal aid funding, the Act seeks to make access to civil litigation easier and to achieve ‘equality of arms’ between claimant and defender. Much of the Act is not yet in force but we can look to recent personal injury cases to draw some general conclusions about the likely application of the new system.

The proposed changes

The standard principle for costs in civil actions is that an unsuccessful party bears the successful party's costs (i.e. costs follow success). However, in the spirit of creating a level playing field, the Act introduces Qualified One-way Costs Shifting (QOCS) in personal injury actions. This means that an unsuccessful claimant will not be found liable for the defender’s costs if the claimant is considered to have conducted the litigation reasonably.

In order to recover costs, a defender will have the onus of showing that the claimant:

(a) has made a fraudulent representation or has otherwise acted fraudulently in connection with the claim or proceedings,

(b) has behaved in a manner which is manifestly unreasonable in connection with the claim or proceedings, or

(c) conducted the proceedings in a manner that the court considers amounts to an abuse of process.

There is a risk that QOCS could put pressure on insurers, local authorities and businesses to settle weak claims; knowing that even if they successfully defend a case, they are likely to be liable for the claimant’s litigation costs. The extent to which the exceptions will be applied is unknown, but it is likely that they will be applied sparingly; to do otherwise would undermine the purpose of the changes.

However we are not entirely in the dark; in recent years, there have been a number of decisions in Scottish courts which have considered unreasonable litigation behaviour and we may find some indication of the court’s likely approach there.

Recent Scottish case law

In Gibson v Menzies Aviation (UK) [2016] SC EDIN 5, the claimant’s decision to proceed with his court action when he had failed to disclose medical evidence to the defender, despite numerous requests, was held to be unreasonable. If the claimant had acted upon the defender’s requests, the claim could have been settled pre-litigation. On that basis the court reduced the claimant’s recoverable costs by two thirds.

In Devine v Laurie [2016] SC EDIN 83, the litigation itself was held to be reasonable as there were live issues in dispute around contributory negligence. However, the fact that medical evidence which the claimant relied upon was only disclosed after court proceedings were raised was held to be unreasonable. There was no good explanation for the medical report being withheld and disclosing it would have, at the very least, narrowed the scope of the litigation. This caused a likely delay in settlement and caused unnecessary expense to the defender. The claimant’s costs were accordingly reduced by 20%.

In Grubb v Finlay [2017] CSOH 81, the claimant was successful in his action for damages but was also held to have grossly exaggerated his losses. The claimant’s “lack of candour” meant that the trial was significantly longer than necessary. The court was not willing to dismiss the case because there was a genuine claim at the heart of the exaggeration, but decided that the defender was entitled to two thirds of the judicial costs.

In the case of Crawford v Zurich (2017) (unreported), in which Brodies acted for the defender, the defender admitted liability and made various requests for vouching in order settle the claim. The claimant ignored all of those requests and raised a court action. The sheriff found that settlement would have occurred, had vouching been disclosed, and the relative simplicity of the case meant that litigation would not have been likely. The court therefore held that the defender was entitled to the costs of the action on the Ordinary Cause Scale, albeit restricted those to 75%.

In Zdrzalka v Sabre Insurance [2018] SC EDIN 57, the claimant failed to disclose medical evidence until the defender entered proceedings. It was an internal policy of the claimant’s solicitors to refrain from disclosing medical reports until actions were defended. When the medical report was disclosed following litigation, settlement occurred very quickly. It was held that the court’s discretion as to costs would not be restricted by the internal policies of the claimant’s solicitors. The sheriff concluded that the medical report should have been disclosed no later than when proceedings were served. The fact settlement occurred almost immediately after disclosure showed that the claim could have been resolved swiftly without the need for litigation. As a result, the defender was awarded half of its costs and the claimant’s costs were restricted by half.

Conclusions

These cases highlight the obligation placed on a claimant to avoid litigation unless it is necessary and this could provide an effective limitation to QOCS. From a defender’s point of view, taking all steps possible to settle will currently provide a good basis from which to argue for restriction of a claimant’s costs. Once QOCS is introduced the same arguments could have force when seeking an exception to the general rule. Accordingly, where it is suspected that a claimant is significantly exaggerating his claim, is unreasonably raising court action without engaging in meaningful pre-action negotiation or fails to disclose evidence or vouching within a reasonable time, there may be a good basis for avoiding QOCS. Pre-litigation, the body of decisions thus far should be used to persuade claimant’s solicitors to release medical and other evidence sooner and it may well become easier to settle claims without litigation.

Although the Act is now on the statute books, further secondary legislation will be required before QOCS is implemented. This allows the opportunity for insurers to continue to engage with the Scottish Government to ensure the reforms lead to a landscape that is fair to all prospective litigants. The Scottish Government launched a consultation in relation to Part One of the Act – regulation of Damages Based Agreements on 9 November. Written responses are due by 31 January 2019. Meantime, the Scottish Civil Justice Council is currently working on Rules of Court which will provide the practical detail required to implement the Act.